Principal accused of stealing funds

Allegany Co. woman denies taking $18,000 from school

Federal prosecutors charged a Western Maryland principal yesterday with stealing more than $18,000 from her school, taking funds intended for classroom books and reimbursement to teachers.

Diane L. McFarland, 51, of Frostburg appeared in U.S. District Court in Baltimore yesterday morning, accused of taking money from Cash Valley Elementary School in LaVale, Allegany County. McFarland - who is also the campaign treasurer for a longtime Democratic state delegate - pleaded not guilty to theft and fraud, and was released pending her next court appearance.

A grand jury indicted her Monday, and the charges were unsealed yesterday.

In an interview, McFarland's attorney said the 30-year employee of the Allegany County school district maintains she did nothing wrong after an audit first discovered discrepancies in July 2004. But McFarland was unable to convince officials that she did not break the law, according to her lawyer.

"It's been devastating for her," Towson lawyer Thomas Morrow said.

School system officials said McFarland has been suspended with pay since November 2004. As of yesterday, Assistant Superintendent John F. Wagoner said her status changed to leave without pay.

McFarland has been told the system now intends to fire her, according to school board Vice President Tom Striplin.

McFarland worked as a teacher, assistant principal and principal at two elementary schools during her tenure, Wagoner said.

"It's certainly very disappointing for an employee to be in this situation," Wagoner said. "It's a reflection upon the individual and not the district. We would have never condoned that."

McFarland received substantial help from state Del. Kevin Kelly in her unsuccessful negotiations with school district officials, according to Morrow. Wagoner declined to comment on Kelly's role in trying to rescind McFarland's suspension.

State records list McFarland as campaign treasurer for Kelly, an Allegany Democrat.

Kelly appeared in court yesterday with McFarland for her initial appearance before Magistrate Judge Susan K. Gauvey. Gov. Robert L. Ehrlich Jr. is a close friend of Kelly from their days in the General Assembly and tried unsuccessfully this year to appoint him a county judge.

Kelly did not respond to phone messages yesterday.

A source familiar with the investigation, who refused to be identified because it is a pending case, said law enforcement officials do not believe there is a link between the allegations over stolen funds and Kelly's campaign.

The case fell under the jurisdiction of the U.S. attorney's office because McFarland is accused of falsifying invoices to receive reimbursement from the Success for All program, which is federally funded.

According to the indictment, Cash Valley teachers attended a Success for All training conference in Atlanta. McFarland was given a $7,000 advance to cover expenses and handled the teachers' receipts.

"McFarland submitted materially false and fraudulent receipts that had inflated dollar-amounts and included some additional fictional expenses," the indictment says.

Her invoice called for about $2,160 in reimbursement, when the teachers had spent only $773.

"McFarland falsely told the teachers that their expenses were not reimbursable and kept the approximately $2,160 for herself," according to the indictment.

Federal prosecutors allege that after she was interviewed by an auditor in July 2004, McFarland sent a letter to the five teachers the next month with $120 in cash for each one.

"Hi, lady!" McFarland's letter said, according to the indictment. "A little surprise for you. Reimbursement for expenses in Atlanta. Sorry this is so late - I thought it was mailed to you, but it was put in your mailbox instead. I just discovered it."

McFarland also submitted fraudulent invoices and statements for books and materials that were supposed to be purchased but never were, according to the indictment. McFarland obtained about $12,036 in the 2003-2004 school year and about $4,112 in two other years by this scheme, federal prosecutors say.

If convicted, McFarland could receive a maximum sentence of 20 years in prison and a $250,000 fine.